Follow the Money

Follow The Money

Global investments
There's a new headache for venture capital firms in Silicon Valley: too much money and not enough deals. If money's cheap and deals are scarce, the price for private company stock will become inflated and start to pressure VC returns on investment. One strategy many VC firms are pursuing in this era of bloated coffers is global investment. England, France, and Germany are littered with a new generation of private interactive content and multimedia tool companies aching for growth capital. Paul Dali, general partner with New York-based Nazem and Company (415/854 3010), recently confided at a venture capital press briefing in Menlo Park, California: "We are now co-managing an international venture fund with Banexi Corp., a Parisian merchant bank, and this gives us the inside track on funding some of the hot European start-ups.

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It also provides us with a European beachhead to help our US portfolio companies establish relationships with overseas partners."

Even some of the old-time Silicon Valley VCs are joining the investment scrimmage abroad. Northern California-based venture heavyweights New Enterprise Associates (415/956 1579), Oak Investment Partners (415/854 8825), and Sequoia Capital (415/854 3927) joined 4C Ventures L.P. (a venture arm of the Ivrea, Italy-based Ing. C. Olivetti & Co. S.p.A.) in throwing money behind ATM Ltd., a two-year-old concern with a second-generation networking software product, based in Cambridge, England. When you dig deeper into the deal however, you learn that ATM Ltd. has just opened headquarters in Northern California. "In every deal we fund, we would like to see the CEO and VP of sales located somewhere on the West Coast so we can regularly visit and help them out," says Douglas Leone, general partner at Sequoia Capital. "It doesn't matter if manufacturing and engineering are overseas."

All in all, most financial insiders agree that this VC trend bodes well for at least the short-term health of the European new-business environment. "Just two years ago, the thought of a European technology start-up raising early-stage venture capital was pure fantasy," says Ovid Santoro, a corporate development manager who raised capital for Argonaut Software Ltd., a privately owned game company outside of London. But with all the US money now available, it isn't as hard for a young start-up to find the financial fuel to get off the ground.

Power Mac's alter ego
While US VCs are busy exporting cash, Olivetti is exchanging lire for stock in private Silicon Valley companies. Olivetti Ventures (212/371 5630) is operated by its burly and highly energetic vice chair, Elserino Piol. Piol has been actively investing in private technology companies for more than 30 years. "He keeps four secretaries busy," says Alexandra Giurgiu, who operates Olivetti Ventures's portfolio in the US. Piol's latest brainchild – Power Computing Corp., the Milpitas, California-based company that recently licensed the Macintosh operating system – is ramping up to graft the IBM clone-maker model onto the Mac market. This company will make money at 20 percent gross by building cheap computers with off-the-shelf parts, a redesigned motherboard, and a simple case – and by selling them by mail order from a warehouse in Austin, Texas. To run the show, Piol signed on Stephen Kahng, the engineer famous for taking $200,000 and coming up with the design that made Leading Edge a top-selling IBM clone maker in the '80s. Also involved in the deal are Enzo Torresi, who co-founded Businessland and helped get Milpitas-based NetFrame Systems Inc. off the ground, and Carlton Amdahl, a co-founder of NetFrame. All eyes are on Power Computing as it begins to ship in volume.

New trades for TWIT$
I'm going to hold onto most of the stocks in the TWIT$ portfolio this month. But I'm so miffed that the price of Applied Digital Access has tumbled, I'm going to cut my losses and run over to pick up stock at Global Village Communication Inc. instead. Global Village, based in Sunnyvale, California, is an established player in the Macintosh modem business – it has recently diversified into the Windows market and has also introduced a hot-selling Internet access software package. Bolstered by a top-flight management team, growth prospects look superior at Global Village.

The Wired Interactive Technology Fund (TWIT$)

Company

Primary Business

Symbol

Shares

Price Apr.3

<since mar.1=""

Action

Brøderbund Software

CD-ROM sw

BROD

1100

50 1/4

– 4

hold

The 3DO Company

Games hd/sw

THDO

3000

13 7/16

+ 1/16

hold short

Silicon Graphics Inc.

Multimedia hw

SGI

2700

37 7/8

+ 3

hold

Wavefront Technologies Inc.

Multimedia sw

WAVE

5200

17 1/2

+ 7/8

hold

Mobile Telecom Technologies Corp.

Mobile computing

MTEL

3300

23 1/2

+ 1

hold

Motorola Inc.

Communications/hw

MOT

1600

56 3/8

+ 2 1/2

hold

Cisco Systems Inc.

Connectivity

CSCO

2500

39 3/8

– 1/4

hold

Microsoft Corp.

Software

MSFT

500

82 1/8

+ 12 1/8

hold short

Apple Computer Inc.

Hw/sw

AAPL

6000

38 1/4

+ 2 3/4

hold

Oracle Systems Corporation

Database sw

ORCL

6000

30 1/16

– 2 1/16

hold

NETCOM Online Comm.Service Inc.

Internet provider

NETC

30000

24 5/8

+ 1 3/8

hold short

Applied Digital Access

Digital access network

ADAX

4000

13 1/4

– 1 3/4

sell

ADC Telecommunications

Digital access network

ADCT

4000

32 7/8

+ 2 7/8

hold

New Stocks

Global Village Communications Inc.

Communications hw/sw

GVIL

3800

14 1/8

buy

Portfolio Value $1,201,806.25 (+20.18% overall) -1.95%

Legend: This fund started with US$1 million on Dec. 1,1994. We are trading on a monthly basis, so profits and losses will be reflected monthly,and profits reinvested in the fund or new stocks.

Information in Follow the Money combines public data, professional insight, and street gossip gleaned from within a crowd of Schwarzenegger fans at Variety's Big Picture conference in New York, from the free cocktails line at mFactory's launch party at SF MOMA, from hardware and Wiredware booths at the spring COMDEX, and from the Net. Wired readers who use this information for investment decisions do so at their own risk.

Anthony B. Perkins (kids@netcom.com) is editor and publisher of The Red Herring, a monthly investment magazine published in San Francisco.

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